On Wednesday, gold (XAU/USD) rose for the eighth day in a row. The precious metal, however, rebounded from record highs of $5,311 in the European session, returning to the mid-$5,200 range as investors positioned ahead of the US Federal Reserve’s monetary policy decision.
The Fed is almost certain to exit politics interest rates at the current level of 3.50%-3.75%. and point to stable monetary policy in the coming months. The development comes amid unprecedented pressure from the administration to lower interest rates and speculation that US President Trump could steal the show by revealing the name of the next Fed chairman.
Technical Analysis: The next upside targets are $5,310 and $5,455
XAU/USD continues to surge higher despite the recent pullback, with all signs pointing to excessive growth but no signs of a trend change. The Moving Average Convergence Divergence (MACD) remains positive but has weakened from recent highs, indicating that upside momentum is weakening. The RSI indicator (14) is at levels that usually predict a corrective reaction.
Immediate resistance is at an all-time high of $5,311. Further upwards, the Fiboonacci extension of 261.8% from the increases of January 16-21, the next target emerges near $5,455. On the other hand, the pair could find support at the previous record high near $5,100 before the January 26 low in the $5,000 area.
(The technical analysis for this story was written with the facilitate of an AI tool.)
Gold FAQs
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, beyond its luster and exploit in jewelry, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in turbulent times, central banks typically diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves may provide a source of confidence in the country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion. This is the highest annual purchase since registration began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US treasury bonds, which are both major reserve assets and sheltered haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their holdings in turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets favor the precious metal.
The price may change due to many factors. Geopolitical instability or fear of a deep recession can quickly cause gold prices to rise due to its safe-haven status. Gold, as a non-yielding asset, tends to rise at lower interest rates, while the higher cost of money tends to weigh on the yellow metal. Still, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A mighty dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
